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Trustees and Beneficiaries Under FinCEN Scrutiny

by | Nov 8, 2023 | Business Law

Many of you may have heard about the Corporate Transparency Act or CTA.  What you probably have not heard is that when a trust owns or has substantial control over certain limited liability companies, limited liability partnerships, corporations, or other entities (each, a “Company”), the Company may be required to report personal information about the grantor, trustee, beneficiaries or others associated with the trust.

FinCEN, the Department of Treasury’s lesser-known enforcement agency, focuses on prosecuting those who commit financial crimes, such as money laundering and tax fraud.  These criminals oftentimes form and own shell Companies to facilitate their crimes.  In an attempt to better identify and prosecute these criminals, the CTA requires certain Companies to report personal information about any individual who, directly or indirectly, exercises substantial control or owns 25% or more (a “Beneficial Owner”) of the Company.  When a trust has an ownership interest in the Company, the trust is ignored, and reporting focuses on the true identities of the persons controlling or financially benefiting from the Company.

  • The trustee of a trust falls within the CTA’s definition of a Beneficial Owner if they have the authority to dispose of trust assets, can exercise voting rights, or is on the Company’s board of directors.
  • A trust beneficiary is reported as a Beneficial Owner if he or she is the sole permissible recipient of income and principal (think the surviving spouse of a marital trust) or has the right to demand or withdraw substantially all trust assets. A person with only a future interest in inheritance, such as a future trust beneficiary, does NOT make you a beneficial owner.
  • A grantor is a Beneficial Owner when the grantor has the right to revoke the trust or if the grantor has the right to withdraw assets from the trust.

When determining substantial control and ownership percentages, assets controlled by or held in trust for a person’s benefit are aggregated with assets such a person holds outside of the trust.

Ongoing Reporting

In addition to the CTA’s initial reporting requirements, a Company has an ongoing obligation to report changes in Beneficial Ownership, such as:

  • The addition of a Beneficial Owner;
  • A person who ceases to be a Beneficial Owner;
  • A change of address for a Beneficial Owner;
  • Changes in substantial control of a Company, such as when a trust beneficiary acquires withdrawal rights; and
  • A change in the trustee, trust advisor, or trust protector of a trust.

The CTA also requires that Companies in existence on or before December 31, 2023, must report information on their Beneficial Owners by December 31, 2024.

Please review the following example to better understand who will be reported as a Beneficial Owner and when reporting is required.


Jill owns a rental property.  Jill transfers the rental property to her revocable trust.  Then, on January 1, 2024, acting as the trustee of her trust, Jill creates an LLC and transfers the rental property to the LLC.  Under the terms of the Operating Agreement for the LLC, the trustee of Jill’s trust is the sole director of the LLC.  Jill’s brother, Jack, is the successor trustee, and Jill’s four children are the beneficiaries of her trust.

  • During her lifetime, Jill is the trustee and beneficiary of the trust and, thus, has complete control and receives all of the financial benefits of the LLC. Therefore, Jill is the sole Beneficial Owner of the LLC.  Within 30 days of formation, the LLC must report Jill as a Beneficial Owner and provide FinCEN with Jill’s legal name, home address, date of birth, driver’s license or passport number, and a copy of the document.
  • Upon Jill’s death, Jack becomes the trustee and, therefore, the sole director of the LLC. The LLC has 30 days to revise its report of Beneficial Owners by removing Jill and adding Jack as a Beneficial Owner.  The LLC must provide FinCEN with Jack’s legal name, home address, date of birth, and a copy of his driver’s license or passport.
  • Jack divides Jill’s trust into four separate trust shares, one for each of her four children. Each trust share owns 25% of the LLC.  The 25% ownership interest within each trust share is attributed to the trust share beneficiaries.    Since each child is now attributed 25% or more ownership in the LLC, the LLC has 30 days to report each of Jill’s four children as a Beneficial Owner and provide FinCEN with their legal names, home addresses, dates of birth, and copies of their driver’s licenses or passports.
  • In 2026, Jack moves out of state. Due to Jack’s change of address, the LLC has 30 days to update its report to FinCEN.
  • In 2036, Jill’s oldest child, Peter, dies, and his trust share is further divided amongst his two children, Paul and Mary. Paul and Mary’s trust shares each have a 12.5% interest in the LLC.  The LLC must report the death of Peter and remove his name as a Beneficial Owner.  The LLC does not report Paul and Mary as beneficial owners because, under the terms of the CTA, neither owns 25% or more of the LLC.

Jill’s trust also owns 80 shares of stock in a closely held corporation (the “Corporation”).  Jill’s daughter Sophia owns ten shares of the Corporation individually.  There are a total of 100 issued and outstanding shares.

  • When Jack divides Jill’s trust into four separate trust shares, each child’s trust share owns 20 shares of stock in the Corporation and 20 shares are attributed to each of the beneficiaries. The 20 shares held in Sophia’s trust share are aggregated with the ten shares she owns as an individual, giving her 30 shares, or 30% of the Corporation.  Since Sophia is above the 25% ownership threshold, the Corporation has 30 days to report Sophia as a Beneficial Owner of the Company.  Jill’s other three children do not have substantial control or 25% or more ownership of the Corporation, so they are not reported as Beneficial Owners of the Corporation.

Angela Ferneding’s practice is focused on estate planning, probate, and trusts. For more information contact Angela Ferneding on at (216) 621-7860.



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